Fixed income managers are entering the new year with a more cautious eye on where the credit cycle stands, as weakening job growth, plateauing corporate earnings and persistent inflation raise the odds that both investment grade and high yield credit could weaken from current levels. That caution is translating into a preference for less crowded corners of the bond market, including structured credit and lesser followed corporate sectors. 

A second theme running through the outlook is that today's low level of policy uncertainty priced into yields looks out of step with an unusually uncertain backdrop on rates, inflation, trade and geopolitics all at once, which is pushing many managers toward more defensive positioning through higher cash levels and shorter duration. 

Private credit draws a more measured take, with the emphasis less on avoiding the asset class entirely and more on sticking with managers who have not loosened their underwriting standards.

Finsum: Fixed income managers are leaning into overlooked sectors and defensive positioning rather than chasing yield wherever it can be found.